UBPR BNY Mellon

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					                                          UBPR BNY Mellon   1




        UNIFORM BANK PERFORMANCE REPORT

          MGMT 473- COMMERCIAL BANKING

                     PROFESSOR H.J. HICKEY

                      NOVEMBER 12, 2009
PREPARED BY:

STEPHANIE CORIZ

TYLER CORMIER

EDWARD LOVATO

LEIGHANNA MARTINEZ

ELIZABETH NUNEZ

LAWRENCE VANDENBOUT
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                          TABLE OF CONTENTS
I.          Company Overview
       A.   Brief Overview                                          3-5
       B.   History                                                 5-7
       C.   Employees and Corporate Culture                         8-10
       D.   Corporate Responsibility                                10-12
II.         Competition
       A.   State Street Corp.                                      13
       B.   JP Morgan Chase & Co.                                   14
III.        Income Statement Analysis
       A.   Discussion                                              15-17
       B.   Noninterest Income and Expense                          17-18
IV.         Balance Sheet Analysis
       A.   Total Assets                                            19-20
       B.   Loan Portfolio Composition                              21-22
       C.   Investment Securities                                   22-23
       D.   Liabilities and Stockholders Equity                     23-24
       E.   Off-Balance Sheet Components                            25
       F.   Loss Ratios                                             26-28
       G.   Balance Sheet Conclusion                                29
V.          Ratio Analysis
       A.   Return on Equity                                        30-33
       B.   Return on Assets                                        33-34
       C.   Burden Ratio                                            35
       D.   Loan to Deposit Ratio                                   36
       E.   Efficiency Ratio                                        37
       F.   Net Interest Margin                                     38-39
VI.         CAMELS Analysis
   A.       Capital Adequacy                                        40-41
   B.       Asset Quality                                           42-43
   C.       Management                                              43-44
   D.       Earnings                                                45
   E.       Liquidity                                               46-47
   F.       Sensitivity to Market Risk                              47-48
VII.        Conclusion                                              49
VIII.       References                                              50-51
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Company Overview

   A. Brief Overview

       Headquartered in New York, NY, The Bank of New York Mellon is one of the

largest securities providers and asset management firms in the world. The Bank of New

York Mellon is the result of a merger between the Bank of New York, Inc. and Mellon

Financial Corporation in July 2007. The Bank of New York Mellon has $22.1 trillion in

assets under custody or administration and $966 billion under management. With more

than one quarter of their 40,000 employees located outside of the United States, The

Bank of New York Mellon serves more than 100 markets in 34 different countries. The

current Chairman and CEO of The Bank of New York Mellon is Robert P. Kelly who

was the chairman and CEO of Mellon Financial Corporation before the acquisition. The

former President of the Bank of New York, Gerald L. Hassell, is now the current

President. The Bank of New York has six major business categories including: Asset

Management, Asset Servicing, Wealth Management, Issuer Services, Treasury Services,

and Broker-Dealer and Advisor Services.



Asset Management-The Bank of New York Mellon Asset Management is one of the

leading global providers of investment management products and services in the world.

They have offices in many financial centers throughout the world including Beijing,

Dubai, Hong Kong, London, Madrid, Rio de Janeiro, Tokyo, and Zurich. Some of The
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Bank of New York Mellon’s major clients include some of the world’s leading

corporations, governments, unions, foundations, endowments, and mutual funds.



Asset Servicing-With $20.2 trillion in assets under their custody and administration, The

Bank of New York Mellon is one of the world’s leading securities service providers. The

Bank of New York Mellon prides itself on providing clients with world-class products

and services including accounting services, custody services, derivative services,

exchange traded funds services and much more. They also utilize world-class technology

to help enhance their management of these services throughout the investment process.



Wealth Management-The Bank of New York Mellon is among the world’s leading

wealth management providers. The main Wealth Management services provided by The

Bank of New York Mellon include investment management, wealth and estate planning,

private banking and finance, and global custody and information management. With

these services The Bank of New York Mellon is able to provide their clients such as

business enterprises, charitable giving programs, and endowments and foundations with

customized strategies.



Issuer Services-The Bank of New York Mellon Issuer Services offers a wide range of

services and products to issuers of debt and equity securities, as well as financial

intermediaries and investors worldwide. The Bank of New York Mellon’s Issuer

Services also includes global corporate trust services, depository receipt services, and

shareowner services.
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Treasury Services-The Bank of New York Mellon’s Treasury Services is a market-

maker in over 100 currencies, and has a network of representatives in 33 foreign

countries. The Bank of New York Mellon is one of the largest foreign exchange

providers. The Bank of New York Mellon Treasuries Services also provides their clients

with expertise on trading in global markets and capital markets, and offers liquidity

services and cash management solutions.



Broker-Dealer and Advisor Services-The Bank of New York Mellon’s affiliate

Pershing Advisor Solutions LLC is a leading provider of financial business solutions to

more than 1,500 institutional and retail financial organizations who collectively represent

approximately five million active investors.


   B. History

       The Bank of New York Mellon Inc was formed in July 2007 as a result of a

merger between The Bank of New York Company Inc and Mellon Financial Corporation

based in Pittsburgh. Today The Bank of New York Mellon is one of the leading

management and securities services financial institutions in the world operating in 34

countries. Both financial companies have had long and rich histories of providing world-

class financial services including security services and financial management locally and

abroad before their merger.
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The Bank of New York Company Inc

-Early History

       The Bank of New York was founded on February 23, 1784.          Alexander

Hamilton wrote the bank’s constitution and became actively involved in the organization

and guided it through its early stages of development. As New York’s first bank they

were able to help the government address the needs of the local merchants and residents.

The Bank of New York was the sole provider of all of New York City’s commercial

paper and financed several importers that were receiving imports at the Port of New

York. The Bank of New York was also involved with the growth of the transportation

networks



-Growth of Products and Services During the 20th Century

        During the beginning of the 20th Century The Bank of New York began to build

on their traditional investment strategies. In 1922 The Bank of New York merged with

New York Life Insurance and Trust Company, which allowed them to expand with a well

established trust business. In 1933 The Bank of New York began to invest trust assets in

common stocks, which was a precursor to modern asset management. The growth of

their security services led to more sophisticated investment vehicles and as a result they

began to increase their product breadth and global reach into Europe and Asia.

However, it wasn’t until its 1988 merger with Irving Trust did The Bank of New York

evolve into one of the world’s leading premier securities servicing companies. With the
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merger, The Bank of New York increased its position internationally in custody,

depository receipts, and trade and payment services.



Mellon Financial Corporation

-Early History

       In 1869 Thomas Mellon and his sons founded T. Mellon and Son’s Bank in

Pittsburgh. Mellon and Son’s started off investing capital to up and coming

entrepreneurs such as Henry Clay Frick, and companies like Alcoa and Westinghouse.

During the industrial revolution T. Mellon and Son’s expanded and quickly became the

largest private bank in the nation.



-Growth of Products and Services During the 20th Century

       In 1904 T. Mellon and Son’s formed their foreign bureau to provide banking

services for customers abroad. After the end of WWI, The Mellon Financial Corporation

began to grow with a series of acquisitions and mergers.   In 1946 T. Mellon and Son’s

merged with Union Trust and expanded its size, scale of services, and expertise and was

now able to compete with the nation’s leading banks. In 1983 Mellon Financial

Corporation established the Mellon Capital Management, and was quickly recognized for

being innovative by originating value-based tactical asset allocation and index fund

management. In the 1990’s Mellon Financial Corporation acquired several large

institutions including The Boston Company, who was a leader in creation of investment

products for pension fund sponsors, and Dreyfus who was one of the largest mutual fund

companies in the US. In 1998 Mellon Financial Corporation decided to grow globally
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and created Mellon Global Investments and based it in London as well as bought a

majority interest in London based Newton Investment Management.



   C. Employees and Corporate Culture

       The Bank of New York Mellon has a strong corporate culture that consists of a

diverse and global culture of talented employees who deliver world-class effort and

teamwork. In order to be successful The Bank of New York Mellon has adopted a set of

core values by which they can exceed their investors’ expectations and support a work

environment where all of their employees can excel. The Bank of New York Mellon

recognizes that employee welfare and fostering diversity in the work place is critical to

their success and as a result, they offer various programs designed to promote employee

welfare and promote a work environment where all employees feel welcome and

included.


       The Bank of New York Mellon’s corporate culture revolves around four core

values in order to be a successful financial institution and they are: Client Focus, Trust,

Teamwork, and Outperformance. First of all The Bank of New York Mellon has a strong

client focus where they view their clients as “Partners of Choice” and are committed to

delivering world class customer service. An integral part of offering world class

customer service involves trust. Employees at The Bank of New York Mellon are held to

a high standard of conducting business with integrity and transparency in order to gain

and maintain the trust of their clients. Teamwork is also very important to The Bank of

New York Mellon, which is why they are dedicated to fostering diversity and
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collaboration where employees can perform at the highest level. The final core value of

The Bank of New York Mellon is outperformance. The Bank of New York Mellon is

focused on exceeding the expectations of their clients, employees, and shareholders. In

essence, The Bank of New York Mellon views themselves as being a, “client-focused,

trusted financial institution driven by an empowered global team dedicated to

outperforming in every market it serves.”



       The Bank of New York Mellon is committed to supporting a diverse workplace

because they believe that diversity plays a huge factor in achieving their business goals.

They believe that their ability to achieve their business goals is closely related to their

ability to create a working environment where all of their employees are able to

contribute their unique skills and experiences. According to The Bank of New York

Mellon’s Diversity Mission Statement they are, “committed to fostering an inclusive

workplace where talented people outside the company want to join and where those

inside want to stay and develop their careers.”



       One important component of The Bank of New York’s diversity program is their

Affinity Networks. These are networks created to present employees the opportunity to

network with other employees who share certain characteristics such as: race, ethnicity,

gender, disability, or sexual orientation in order to help all of their employees feel

welcomed and included. The Affinity Networks are voluntary and open to all employees.
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       The Bank of New York Mellon understands that it can be challenging for

employees to manage their work life, social life, and fulfill their family commitments.

That is why they offer several programs that are aimed at educating, encouraging, and

empowering employees and their families to enjoy healthy and happy lives. The Health

and Welfare Benefits program focuses on flexibility and creating opportunities for their

employees so they can chose the right health care plan and flexible spending accounts

that cater to their individual needs. They also provide well-being information for

employees to learn about healthy lifestyles. The Bank of New York Mellon also helps its

employees prepare for retirement with their Retirement Benefits program. The

Retirement Benefits program consists of a company-paid pension plan and offers

employees other voluntary savings and investment plans where they match a certain

portion of their employee’s contributions.


   D. Corporate Responsibility

       Corporate Social Responsibility is a fundamental aspect of the core values of The

Bank of New York Mellon. The commitment that The Bank of New York Mellon has to

all of their stakeholders drives them to perform with the highest standard of ethical

conduct in order to continually meet their rising expectations. The five major areas that

The Bank of New York Mellon’s CSR focuses on are building and protecting shareholder

value, creating value for their clients, creating a positive work environment, growing

globally and greener, and serving their community.
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Building and Protecting Shareholder Value

       With “Outperforming” their competitors as one of their core values, The Bank of

New York Mellon is dedicated to creating superior shareholder value. The Bank of New

York Mellon’s business segments are driven by growth and market share gains. The key

components of creating superior shareholder value includes, earning higher revenue

growth than the industry average, increasing the total percentage of revenue generated

from their businesses in foreign countries, and having strong investment performance

relative to investment benchmarks. The Bank of New York Mellon’s senior management

is constantly engaging their shareholders, rating agencies, and other members in the

investment community in order to maintain the highest level of transparency possible.



Creating Value for Clients

       Delivering exceptional products and services to their clients is one of the Bank of

New York Mellon’s major core values. The Bank of New York Mellon has three main

focuses when it comes to creating value for their clients. The first area of focus is

ensuring client satisfaction by conducting surveys across their major business segments

as well as conducting annual marketplace surveys in order to asses client satisfaction

levels and brand strength. The second major focus is expanding in social responsible

investments such as the Dreyfus Global Sustainability Fund, which focuses on the

environment and seeking out business having a positive environmental impact. The third

main focus is growing the environmental commodities market. In 2008 The Bank of

New York Mellon founded a Global Environmental Markets business unit to provide

services and support for the environmental commodities market.
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Creating a Positive Work Environment

       The Bank of New York Mellon continually focuses on supporting one of their

most critical assets, their employees. The Bank of New York Mellon has made many

strides in order to enhance employee satisfaction including the development of their

Performance Management Program, which allows employees an opportunity to discuss

their professional goals with their managers and together they can create a plan to support

their professional development. Another major focus of The Bank of New York Mellon

is to provide mentoring, networking, and development opportunities for their diverse

workforce by sponsoring Affinity Programs.



Growing Globally and Growing Greener

       The Bank of New York Mellon has adopted a holistic approach to environmental

sustainability by adopting initiatives that save energy including incorporating green

building principles into new and existing buildings. The Bank of New York Mellon has

also focused on reducing energy. In 2008, seven of their largest U.S. based facilities

achieved the Energy Star designation from the U.S. Environmental Protection Agency

recognizing superior energy performance.
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Competition

       The Bank of New York Mellon is a strong leader in the commercial banking

industry. The banking industry is a competitive environment where banks strive to gain

access to numerous segments and capture market share. Not only has The Bank of New

York Mellon been competing with its rival banks, but it has been surviving through one

of the worst economic times since the Great Depression. Liquidity, profitability, and risk

management have been difficult to maintain while defaults on loans have increased and

the risk of inflation looms. The Bank of New York Mellon has several direct competitors.

For the purposes of brevity, we will only look at its two biggest competitors, State Street

Bank and Trust and J.P. Morgan.

   A. State Street Corporation

       State Street Corporation was founded in 1792 as a commercial bank. Located in

Boston, Massachusetts, State Street employees about 28,475 individuals and has

operations in 27 countries. State Street operates in three divisions: Investment

Management, Investment Servicing, and has added Investment Research and Trading.

Services offered through the Investment Servicing include loans and lease financing,

customized investments in hedge funds, mutual funds, and pension funds. The Investment

Management Division includes corporate and public retirement planning. Investment in

foreign exchange, equities, and fixed income are all aspects of the Research and Trading

division. A 2% increase in total revenue from the 2007-year end resulted in $1.547 billion

total revenue from Investment Management. The Investment Servicing division had a

large increase of 28% amounting to $8.73 billion in total revenue.
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   B. JP Morgan Chase & Co.

       JP Morgan Chase & Co. is a solid leader in the financial industry. Founded in

1799, JP Morgan Chase & Co. is headquartered in New York, New York. JP Morgan

Chase & Co. has made strategic decisions involving acquisitions and mergers within the

last decade. Its merger with Chase Manhattan Bank, and the acquisitions of Bank One,

Bear Sterns, and Washington Mutual have made the company one of the largest in the

financial industry. JP Morgan Chase & Co’s. business divisions consist of 6 categories:

Investment Banking, Retail Financial Services, Card Services, Commercial Banking,

Treasury & Securities Services, and Asset & Wealth Management. Its strongest segment

at year-end, with an increase in 36% from the 2007 fiscal year-end, was Retail Financial

Services with total revenue of $23.520 million. Card Services total revenue at year end

was $16.474 million, an 8% increase from 2007. Commercial Banking and Treasury &

Security earned total revenue $4.777 million and $8.134 million respectively, a 16% and

17% increase. The Investment Banking division recorded $12.214 billion, a negative 33%

difference from 2007 fiscal year end. Lastly, JP Morgan Chase & Co’s. Asset

Management & Wealth division decreased by 12% from a year ago and incurred $7.584

billion in total revenue for the 2008 fiscal year end.
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Income Statement Analysis

   A. Discussion

       The income statement is a financial statement that measures a company’s

financial performance over a period of time. An income statement shows how profitable a

company is but more importantly it shows how revenue is transformed into net income.

Financial performance is reviewed by giving a summary of how the company earns its

revenue and expenses through two major categories, operating and non-operating

activities, which is measured over a fiscal quarter or year. The income statement is very

important because not only can it tell you how profitable a company is but it can also

help investors and creditors. It can be used to determine the past performance of the

company, predict future performance, and help evaluate the capability of generating

future cash flow.

       A company’s revenue minus its expenses gives you the final “profit” or “loss” of

the business. When looking at The Bank of New York Mellon, their main source of

revenue, including noninterest income comes from the many types of services they

provide. The Bank of New York Mellon is a global leader in providing a wide-range of

services to institutions and individuals that allow them to manage and service their

financial assets. The Bank of New York Mellon operates in seven different

segments/sectors. These segments include: asset management, wealth management, asset

servicing, issuer services, clearing services, treasury services and others. These seven

sectors are primary to the revenue of the bank. Asset management and wealth

management generate fees from mutual funds, institutional clients, private clients and
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performance fees. Asset servicing fees include: institutional trust and custody fees,

broker-dealer services and security lending. Issuer services fees are things such as:

corporate trust, depository receipts, employee investment plan services and shareowner

services. Clearing services are fees that include broker-dealer and registered investment

advisor services. Treasury service fees are global payments services and working capital

solutions. Lastly other fees include things such as leasing operations, corporate treasury

activities, global markets and institutional banking services, business exits and M&I

expenses.

       The following income statement shows data over a three-year period. It includes

the banks noninterest income and expenses.
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Approximately 67% of the bank’s revenue comes from its noninterest income and only

33% of its revenue comes from its net interest income. This can help maintain stability

and growth for the bank because they would run less of a risk of someone defaulting on

something like a loan since the majority of the banks revenue is generated through its

noninterest income. Compared with our competition bank, JP Morgan Chase’s revenue

mainly comes from loans and leases, which in return bears higher risk of default. In

relation to State Street, their net income seems to be in a troubled position with a negative

income for June 2009. State Street Bank needs to focus on figuring out a way to generate

positive cash flow.

   B. Noninterest Income and Expense

       When noninterest expense exceeds the noninterest income this becomes what is

known as the banks “burden.” This can occur when there are high overhead costs such as

salaries and wages. Noninterest income is becoming increasingly important due to the

pressure on net income. Today many customers are demanding additional products and

services such as brokerage accounts and insurance, which generate fee income. Since The

Bank of New York Mellon’s primary revenue focus is on serving, it is important to keep

their noninterest expenses under control. Noninterest expenses consist of things such as

personnel salaries, employee benefits and operational expenses.

       When observing The Bank of New York Mellon’s income statement one can see

that over a three-year period their noninterest expense does not exceed their noninterest

income, which means the bank, shows no type of “burden”. Between 2006 and 2008 The

Bank of New York Mellon’s noninterest revenue seems to remain quite consistent.
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However, between 2008 and 2009 the banks profit seemed to decrease the most in

comparison to the previous year. The bank experienced around a 26% drop, but

continued to never reach the burden of noninterest expense exceeding its noninterest

income, which in return helps generate noninterest revenue. As most large banks in the

nation, BNY Mellon relies heavily on noninterest income to generate a substantial

portion of its revenue.
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Balance Sheet Analysis


       The balance sheet of any bank is a very important aspect to consider when

determining the financial condition of the institution. The balance sheet presents financial

information comparing what the bank owns (assets), with what the bank owes

(liabilities), and the ownership interest of stockholders (equity). This information is

required by regulators to be reported quarterly every year following the months of March,

June, September and December. Since banks are required to report their balance sheets

four times per year, there will be plenty of past performance information to examine

which will give a good indication of how well the bank is doing and what can be

expected from the company in the future.

   A. Total Assets

       The total assets of The Bank of New York Mellon increased from June 2007 to

June 2008, where they went from $108.157 billion to $130.062 billion, respectively. This

was an increase of about 20.25%. The banks total assets saw another substantial increase

through the rest of 2008 as they ended the year with $195.164 billion on their books,

which was an increase of about 50.05%. However, that increase has not continued into

2009 as total assets for the institution at the end of the second quarter were down 16.99%.

At that time the total amount of assets was $162.003 billion. This percentage of decline is

higher than what some of the banks competitors such as JP Morgan Chase Bank and State

Street Bank have experienced. During that same time span those banks total assets fell by

4.71% and 12.13%, respectively. According to the article “Bank of New York Post 2.5B
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Loss,” the loss in total assets for The Bank of New York Mellon can be ascribed to the

company’s decision to try and lower balance sheet risk by restructuring $8.5 billion in

securities and selling $3.6 billion in lower-rated securities, resulting in $4.8 billion in

pretax restructuring charges for the quarter. Examining the banks UBPR on the FFIEC

website confirms this action taken by the company. The bank has been able to reduce

interest-bearing bank balances by 36.19%, from $87.807 billion at the end of 2008 to

$56.028 billion at the end of June 2009. As stated by CEO Robert Kelly, the bank took

advantage of rising prices on fixed income securities by selling and recognizing losses on

a significant portion of their securities portfolio. This loss will not significantly affect the

company’s regulatory capital and will lead to increased net interest revenue in 2010

(Bank of New York Post 2.5B Loss). Considering the recent state of the economy it is

easy to see why the bank would want to try and lower its balance sheet risk by reducing

the amount of its total assets, which it has done a good job of relative to some of its

competitors.


                  Total Assets- $162,003,000 (in 000’s)
                                 $3,228,000

                                     ,$1,945,000
                                         $6,000
                                               $18,023,000
                                                                     Net Loans & Leases

                                                                     Investment Securities
                                                    $28,904,000
                                                                     Cash & Cash Equivalents

                                                                     Intangibles

                                                                     Other Real Estate Owned

                                                                     Other Assets

     $109,897,000
                                                                    UBPR BNY Mellon         21



   B. Loan Portfolio Composition

       To understand the assets that The Bank of New York Mellon possesses and

comprehend why restructuring the company’s securities and selling lower rated securities

would cause the bank’s total assets to fall by such a large percentage, you must know

what the individual components are and the weight of those components on total assets as

a whole. By looking deeper into the balance sheet and also examining the graph above,

one can see that the majority of the company’s assets are not tied up in loans. The net

loans and leases for the end of the second quarter, June 2009, was equal to $28.904

billion or 17.84% of total assets. This is not a large percentage of assets on the whole.

Compared to two of its competitors, the bank’s loans and leases represented a lower

percentage of total assets than JP Morgan Chase Bank, who had 34.58% of total assets

tied up in loans and leases, but a higher percentage than State Street Bank, who only had

8.34% of its total assets in loans and leases. The loans and leases that The Bank of New

York Mellon is involved in include mainly real estate loans, commercial loans, individual

loans, agricultural loans, other loans and leases in domestic offices and loans and leases

in foreign offices. Of these loans and leases, other loans and leases in domestic offices

and loans and leases in foreign offices comprise the bulk of the loan section of the asset

portfolio. That is important to note because of the current financial crisis. This means that

the majority of the loans on the books for the company are not in the real estate market,

which are the types of loans that have been at the heart of the crisis. Those types of loans

make up 17.92% of the bank’s net loans and leases. This percentage is far lower than the

amount JP Morgan Chase Bank has in those loans, which was 59.06% of net loans and
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leases. But, it is higher than State Street Bank’s mark of only 5.24% of net loans and

leases.

   C. Investment Securities

          As clearly shown in the balance sheet and the graph above, the majority of The

Bank of New York Mellon’s assets are tied up in investment securities. This section of

the asset portfolio comprised 67.84% of the entire portfolio at the end of June 2009. This

figure is comparable to the banks competitors like JP Morgan Chase Bank and State

Street Bank, which both also have the majority of their total assets in investments and

securities. JP Morgan Chase had about 54.94% of its total assets in investment securities

and State Street had about 77.32% of its total assets in investment securities at the end of

the second quarter 2009. From those large percentages it is understandable to see why

any selling or restructuring of securities would have the kind of affect that it did on The

Bank of New York Mellon’s balance sheet through the second quarter of 2009. The

investment securities section of the asset portfolio for the bank is made up of many

different securities that include US Treasury and Agency securities, municipal securities,

foreign debt securities, other securities, interest-bearing bank balances, federal funds sold

and resale and trading account assets. Of these investments, interest-bearing bank

balances and US Treasury and Agency securities make up the largest portion. The fact

that these two securities have the most invested in them is no surprise. Like most banks,

The Bank of New York Mellon buys and holds securities for an extended period of time.

Because they do this they generally invest in securities that are considered safe, like those

from the US Treasury that have the backing of the full faith in American credit and

securities that pay interest for holding them for extended lengths of time. Total
                                                                    UBPR BNY Mellon         23



investments for the bank have decreased by about 20.79% through the first two quarters

of 2009. As previously stated, the firm has strategically planned this decrease as they

have been selling and restructuring securities in an attempt to lower balance sheet risk.

Since, investment securities make up such a large proportion of the total assets, a close

eye should be kept on this move.

   D. Liabilities and Stockholders Equity:

       Along with analyzing the assets of the company, it is also crucial to take an in

depth look at the liabilities and equity of the company. This section of the balance sheet

will tell you about how the firm is financing and funding their assets and how they are

using the assets they possess to enhance shareholder wealth. The funding sources in this

part of the balance sheet are classified according to the type of debt instrument and equity

component.

       Liabilities

       By taking one look at the liabilities section of the balance sheet, total deposits

jumps out as representing the largest portion of the section. The deposits comprised

90.17% of the $145.818 billion in total liabilities for June 2009. This percentage has

grown over the past few years, as it was only 85.25% and 83.54% of total liabilities after

the second quarter of 2007 and 2008, respectively. Those percentages are very high

compared to JP Morgan Chase’s 64.81% and State Street’s 65.47% of total liabilities

represented by deposits for June 2009. Not only has the percentage represented by

deposits increased over the last few years, the total amount in deposits also has had a

significant increase from $82.858 billion at the end of June 2007 to $131.488 billion at
                                                                    UBPR BNY Mellon       24



the end of June 2009. This is important to note because banks depend on deposits as their

primary way to make a profit. With more deposit money, the bank has the ability to make

more loans and therefore collect more money on the interest they charge on those loans.

They may also use the increase in deposit money to purchase more securities, which

represent the majority of their asset portfolio and are a major source of revenue for the

company.

       Stockholder’s Equity

       By examining the stockholders equity section of the balance sheet you can see

that the company had an enormous amount of growth in this area from June 2007 to June

2008. During that time period stockholder’s equity increased from $11.829 million to

$28.569 million which was an increase of 141.52%. Stockholder’s equity has since

decreased and was at $27.276 million at the end of June 2009. That was a decline of

about 4.53%. This drop is a cause for some concern when you take into consideration

how much growth the company had in stockholder’s equity from June 2007 to June 2008.

In order to better understand this drop we examined the company’s second quarter 10-Q

form for 2009. From this form it was learned that the decrease in total stockholder’s

equity was the primary result of the company repurchasing Series B preferred stock

issued to the US Treasury in October 2008 and an increase in the unrealized net of tax

loss on their securities available for sale portfolio. These actions show that the decline in

stockholder’s equity was a result of a positive move by the company and helps to

mitigate some of the concerns that were associated with the drop.
                                                                   UBPR BNY Mellon       25



   E. Off-Balance Sheet Components

       An aspect of any bank that is just as important to examine as the balance sheet is

the off-balance sheet items of the company. The off-balance sheet items of an institution

are generally the loans and investments of the company that are too risky to place onto

the balance sheet. The Bank of New York Mellon is heavily invested in off-balance sheet

items. At the end of the second quarter of 2009 they had $345.396 million invested in off-

balance sheet items. This amount is lower than it has been the two previous years when it

was at $450.846 million and $404.262 million at the end of the second quarter of

2007and 2008, respectively. That is a decrease of 10.33% from June 2007 to June 2008

and another decrease 14.56% from June 2008 to June 2009. The amount of off-balance

sheet items for the bank is comparable to State Street Bank, which also had an amount of

$345.396 million reported on their UBPR at the end of June 2009. Most of the decrease

in off-balance sheet items that has occurred for The Bank of New York Mellon can be

attributed to the decline in securities lending indemnifications. From June of 2008 to the

end of the second quarter in 2009 the securities lending indemnifications have gone from

$567.027 million to $289.864 million respectively. That is a decline of about 48.88%.

Securities lending indemnifications are fully collateralized transactions in which the

owner of the security agrees to lend the security to a borrower, on an open, overnight or

term basis, which generally matures in less than 90 days. The fact that the majority of off-

balance sheet items are in securities lending indemnifications is a good sign because

those securities are not as risky as others since the bank requires the borrower to provide

102% cash collateral, which is monitored on a daily basis thus lowering the credit risk.
                                                                     UBPR BNY Mellon       26



   F. Loss Ratios:

       When banks make loans or leases they realize that there is a level of uncertainty

associated with the fact that not all of those loans and leases will be paid back by the

borrower. Because of this reason, banks have to hedge against this risk with an allowance

for leases and loan losses. This allowance falls under General Accepted Accounting

Principles (GAAP), which requires the bank’s lease and loan loss reserves to be ample

enough to cover the known and inherent risk of the company’s loan portfolio. Being able

to predict and preparing for losses is a key aspect that all banks must have in order to

survive.

       There are a few ways to see if the bank has adequately prepared for loan and lease

losses and the first is by looking at the net loans and lease losses to average total loans

ratio. This ratio will show you the amount of loans that have been charged off as a

percentage of total loans made by the bank. When looking at this ratio, a lower number is

preferred because it shows that there have not been a lot of loans charged off by the bank,

which means they are doing a good job in determining who they should and should not

give loans to. This ratio for The Bank of New York Mellon was -0.09 and 0.16 at the end

of June 2007 and 2008, respectively. The ratio has since increased to 0.53 at the end of

June 2009. State Street Bank and JP Morgan Chase Bank also had a similar increase in its

net loans and lease losses to average total loans ratio. State Street reported a ratio of 0.00

at the end of June 2007 and 2008. However, for the end of June 2009 that ratio had

moved to 0.18. For JP Morgan Chase their ratios climbed from 0.43 for June 2007, to

1.13 for June 2008. Their current ratio for the end of June 2009 was 2.18. With the

current state of the economy it is reasonable to see why this ratio would increase as it
                                                                      UBPR BNY Mellon        27



becomes harder for businesses and individuals to stay current on their debt obligations.

However, even though this ratio has increased for The Bank of New York Mellon, the

June 2009 mark of 0.53 can still be considered a good sign for the bank. This is because

this ratio means that the bank is doing a good job of making loans to the right people and

is not having to charge off more loans than they are collecting on.




         Net Loans & Leases Losses to Average Total Loans
                   Ratio (End of Second Quarter)
   2.5

    2

   1.5
                                                                         Bank of New York
    1
                                                                         State Street Bank
                                                                         JP Morgan Chase Bank
   0.5

    0

  -0.5
              2007          2008          2009




          Another ratio that can be used to determine the ability the bank has to cover loan

and lease losses is the earnings coverage of net losses ratio. This ratio is made up of the

sum of income before taxes, securities gains or losses and the provision for loan and lease

losses divided by net loan and lease losses. In this case the desired number would be a
                                                                    UBPR BNY Mellon             28



higher one because that will represent the number of times current income can cover bank

losses. This ratio was 33.76 at the end of June 2008, but has decreased to 18.51 thru the

first two quarters of 2009. In this regard The Bank of New York Mellon is lacking when

compared to State Street Bank, which had a ratio of 166.23 at the end of June 2009. This

is well above The Bank of New York Mellon’s ratio and something the bank can

definitely improve on. On a positive side The Bank of New York Mellon’s ratio was

higher than JP Morgan Chase’s reported 2.47 and still puts the bank in a good position to

cover any losses they may incur in the future, which is what is needed to ensure the future

success of the company.

                Earnings Coverage of Net Losses Ratio
                       (End of Second Quarter)

  180
  160
  140
  120
  100                                                              Bank of New York

    80                                                             State Street Bank
    60                                                             JP Morgan Chase Bank
    40
    20
     0                                                         *State Street Bank’s ratio was
                                                                reported as N/A for 2008.
            2008        2009
                                                                    UBPR BNY Mellon      29



   G. Balance Sheet Conclusion:

         Given the current financial crisis, many banks are trying to reduce the size and

risk of their balance sheets. The Bank of New York Mellon falls right in line in regards to

this aspect. The company has done some good things, such as selling and restructuring

securities in an attempt to lower risk and a good job of not having to charge off more

loans then they are collecting on. They also have things they need to work on like

bringing their earnings coverage of net losses ratio closer to what State Street Bank has

been able to accomplish. Overall, it looks like The Bank of New York Mellon is doing a

good job when it comes to making the quality moves to maintain stability of their balance

sheet.
                                                                                             UBPR BNY Mellon                30



Ratio Analysis

        A. Return on Equity
                Return on equity (ROE) is a measure of how well a company uses reinvestment

earnings to generate additional earnings, equal to a fiscal year’s after-tax income. The

Return on Equity is an important profitability ratio and is most often used as a general

indication of the company’s efficiency. This is a very useful ratio for The Bank of New

York Mellon (BK) because it tells them how much profit it is able to generate given their

resources. It is important for the bank to have a high or growing return on equity because

not only does this generate profits for them but it also shows the banks efficiency. Return
                              ������������ ������������������������                                          ������������ ������������������������
on equity ROE=                                      is calculated by multiplying ROA= ��������������������                   by EM=
                                  ������������������������                                                      ������������������������

�������������������� ������������������������
                          ; ROE = ROA x EM.
     ������������������������


                Tied closely to ROE is the Return on Assets (ROA); these two are linked together

through the equity multiplier (EM). The equity multiplier (EM) is a debt management

ratio which is used by banks to examine how they are using their debt to finance assets or

how much they are worth. This ratio shows the banks total assets per dollar of

stockholders’ equity. The higher the equity multiplier the higher financial leverage the

bank has. This means that shareholders are receiving a greater return on invested assets,

but at the same time the bank is relying too much on their debt to finance these assets.

The greater leverage a company has the more risk they are taking on; the high leverage is

an indicator that the company may be in financial trouble in making their required debt

payments. The equity multiplier
                                                                      UBPR BNY Mellon      31



                    Equity Multiplier                          is used to better understand

                          6/2009      6/2008      6/2007       the company’s financial

 Bank of New York         13.35       14.61        10.99       leverage, yet still being able

  State Street Bank       12.60       11.03        14.21       to accurately represent the

       & Trust                                                 company’s profitability.

                                                               This is a very useful ratio

for companies and The Bank of New York to use, so they can take full advantage of each

asset they have, thus enabling them to make better and more logical investments. By

doing so, the company can begin to readjust their spending to make the most of what they

have, while having to use less of their debt to finance new assets.

       In the past three years, Bank of New York Mellon has seen an overall increase in

its equity multiplier from fiscal year 2007. This shows that the Bank of New York is

relying much more on their debt to finance their assets. After taking a look at The Bank

of New York’s balance sheet, it is clearly stated that from fiscal year 2007 to fiscal year

2008 they had a considerable increase in their equity multiplier from 10.99 to 14.61. This

increased equity multiplier shows that the bank was using an increasing amount of their

leverage to invest in new assets. However, from fiscal year 2008 to fiscal year 2009,

Bank of New York decreased their equity multiplier by 1.26 points from 14.61 to 13.35.

This shows that the Bank of New York has decreased the financing of assets by using

their leverage therefore decreasing their equity multiplier. The banks goal is to try to

keep the equity multiplier as low as possible and by doing so it decreases their amount of

debt they carry. With a high equity multiplier a bank is taking the risk of becoming

insolvent. When a bank begins to become insolvent, they are no longer able to meet their
                                                                    UBPR BNY Mellon       32



stated obligations and most undergo bankruptcy and face being shut down by the FDIC.

Solvency on the other hand is what a company strives for. Solvency is the ability for a

bank to be able to service its debt as well as meet its other obligations, especially long

term.

        Bank insolvency has become a big problem in our current financial dilemma.

More and more banks are being shut down by the FDIC on the basis of no longer being

able to meet their stated obligations. The report of banks that are being shut down is

released at the close of business each Friday.

        Concerning the equity multiplier, we are comparing The Bank of New York

Mellon to its competitor State Street Bank and Trust Company. State Street was

struggling with their financial leverage in 2007. From 2007 they were able to decrease

the amount of assets they were financing against their leverage, while also being able to

increase their total equity. This has allowed the bank to gain back more solvencies. State

Street showed a sign of improvement from fiscal year 2007 to fiscal year 2008; and

although they had another increase in their equity multiplier in 2009, they are still lower

than they had been in 2007. Bank of New York, however, saw a large increase in its

equity multiplier from fiscal year 2007 to fiscal year 2008. At that point Bank of New

York was taking on the risk of becoming insolvent as they were rapidly approaching

possible closure. Although The Bank of New York managed to decrease their equity

multiplier in fiscal year 2009, they are still not quite out of the woods yet. They are

currently working on assessing their books and trying to wipe out the bad assets they had

financed with their financial leverage.
                                                                    UBPR BNY Mellon         33



        When comparing ROE of Bank of New York and State Street, State Street has

been able to raise more capital in order to avoid the dependence on their leverage to

finance their assets. State Street has seen a large decline in ROE over the past three

years, while The Bank of New York has continued to see their ROE go up and down.

State Street has been able to raise their capital, thus decreasing the amount of external

financing needed to enhance the performance of the firm. Although The Bank of New

York has seen an up/down fluctuation in their net income, they have managed to stay

solvent by capitalizing externally and bringing more monetary assets in and investing in

less.

    B. Return on Assets

Return on assets (ROA) is determined by dividing net income by the average total assets.

        Net Income of Firm
ROA = Average   Total Assets


Often times the ROA is looked at as a counter part to the ROE. The ROA is an indicator

of how profitable a company is relative to its total assets. It also gives an idea as to how

efficient management is using its assets to generate earnings. ROA tells a person what

earnings were generated from invested capital (assets). These assets are comprised of

both debt and equity. Both of these assets are used in financing and funding the

operations of the company. Companies and banks want a high ROA number because that

means they are earning more money with less coming from investments. Conversely, the

ROA is often referred to as “return on investments.” Since assets vary from business to

business, the return on assets is highly dependent on industry type that the company is
                                                                     UBPR BNY Mellon      34



competing in. Therefore, it is important when comparing ROA to compare to a previous

year or to your leading competitors.

       The industry average (industry goal) for ROA is 0.31%. According to this 0.31%

average, The Bank of New York is in a good position for the banking industry. In fiscal

year 2007, both Bank of New York and State Street were averaging around the same

ROA. Within decimals of each other for year 2007 Bank of New York managed to

dramatically decrease their ROA from fiscal years 2007 to 2008. The Bank of New York

went from 0.6221% in fiscal year 2007 to 0.2169% in fiscal year 2008. With industry

average set at 0.31%, The Bank of New York turned an ROA of 0.3771% for fiscal year

2009. As for State Street they saw an increase in ROA from year 2007 to 2008; then

turned a negative ROA in June 2009. This shows that the bank has inefficiently managed

its investments in relation to its capital. The bank is largely spending more and investing

in new assets against their leverage. If State Street continues to do this they are taking a

big risk of becoming insolvent.


                                    Return on Assets (ROA)
                                               6/2009
                              Net Income             Total Assets                 ROA
   Bank of New York            639,000               169,448,000               0.3771%
     State Street             -2,711,549             152,637,071               -1.7765%


                                    Return on Assets (ROA)
                                               6/2008
                              Net Income             Total Assets                ROA
   Bank of New York             274,000              126,313,000               0.2169%
     State Street              1,053,412             139,254,460               0.7565%


                                    Return on Assets (ROA)
                                               6/2007
                              Net Income              Total Assets               ROA
   Bank of New York            595,000               95,641,000                0.6221%
     State Street              615,478               100,298,560               0.6136%
                                                                                               UBPR BNY Mellon     35




   C. Burden Ratio
       The burden ratio measures the amount of noninterest expense covered by fees,

service charges, securities gains, and other income as a fraction of average total assets.

The burden ratio is calculated:

                 �������������������������������������������� ���������������������������� −�������������������������������������������� �������������������� ����
Burden Ratio =                     ���������������������������� �������������������� ������������������������


The greater the burden ratio, the more noninterest expense exceeds noninterest income

from the bank’s balance sheet. Therefore banks are better off with a low burden ratio.


                                             Bank of New York Mellon
                                          6/2009                6/2008                                 6/2007
 Net Interest Income                    $1,379,340             $628,080                               $709,080
 Noninterest Income                     $2,815,000            $2,424,000                             $2,168,000
 Noninterest Expense                    $2,758,000            $2,207,000                             $1,954,000
 Average Total Assets                  $169,448,000          $126,313,000                            $95,641,000
       Burden                            -0.0336%              -0.1718%                               -0.2238%
      Efficiency                          65.76%                72.31%                                 67.92%

Notice, The Bank of New York has a higher noninterest expense than noninterest income.

The noninterest expense is generally higher because of considerable noninterest expenses

incurred as a result of generating interest income and low cost deposit.

       The smaller a bank’s burden, the better a bank has performed on trend versus its

competitors. The components of noninterest expense determine whether personnel,

occupancy, or other expense is greater as a fraction of assets. Managers also compare

service charges on deposits and other fee income as a fraction of noninterest income and

assets to assess their relative performance related to asset utilization.
                                                                    UBPR BNY Mellon        36




   D. Loan to Deposit Ratio

       The loan to deposit ratio is the amount of the bank’s loans divided by the amount

of deposits that the bank is holding at a given time. The higher the ratio, the more the

bank is relying on borrowing funds, which are generally more costly than most types of

deposits.


                          ������������������������ �������� ���������������� ��������������������
Loan to Deposit Ratio =     ������������������������ �������� ��������������������������������


                       Bank of New York Mellon- Loan to Deposit Ratio
                                    Loan to Deposit Ratio
                               6/2009                  6/2008                 6/2007
       Loans                 7,004,000               5,920,000              5,736,000
      Deposits              20,483,000               4,854,000              6,372,000
   Loan to Deposit            0.3419%                 1.2196%                0.9007%

In order to arrive at the loan amount we summed the total amount of loans. The loans we

used to arrive at the above figure was computed by adding the total amount of real estate

loans, commercial loans, individual loans, and agricultural loans. For the deposits we

used the figure off of the balance sheet called “Demand Deposits.” As you can see from

fiscal year 2008 to fiscal year 2009 The Bank of New York Mellon managed to

significantly decrease their amount of loans to deposits.         From this figure we can

conclude that the bank has stepped back and has been more carefully evaluating their

loans before approving them, therefore The Bank of New York Mellon is not borrowing

so many funds against their deposits.
                                                                                                       UBPR BNY Mellon   37



     E. Efficiency Ratio

          The efficiency ratio is a valuable measurement of performance. Formally, the

efficiency ratio equals noninterest expense as a fraction of net operating revenue, where

net operating revenue is the sum of net interest income and noninterest income.

                                               �������������������������������������������� ����������������������������
Efficiency Ratio= ������������ ��������������������������������          ������������������������ +�������������������������������������������� ������������������������

The efficiency ratio measures the amount of noninterest expense paid to earn one dollar

of net operating income. Smaller efficiency ratios typically signal greater profitability for

a bank, all other things being equal. The efficiency ratio benchmark of 72 percent has

been set for BNY Mellon. For the quarter ended June 30, 2009 BNY Mellon’s efficiency

ratio was 65.76%. This is well below the established benchmark and signals that

management is effectively controlling expenses and generating noninterest income (i.e.

fees). Compared to a year ago, BNY Mellon has been able to reduce their efficiency ratio

by over 6.5%. This is a positive sign that BNY Mellon’s profitability will increase due to

more effective cost-cutting measures coupled with a more effective noninterest income


                                           Efficiency Ratio BK vs. Peer Group
                                    80.00%
                                    70.00%
                 Efficiency Ratio




                                    60.00%
                                    50.00%
                                    40.00%
                                    30.00%
                                    20.00%
                                    10.00%
                                     0.00%

                                                  6/30/2007                             6/30/2008        6/30/2009
                                      BK             67.92%                               72.31%          65.76%
                                       Peer
                                                     56.14%                               58.30%          64.30%
strategy.                             Group
                                                                             UBPR BNY Mellon   38




    F. Net Interest Margin

        Net Interest Margin is a summary measure of the net interest return on income-

producing assets:
                                   ������������ �������������������������������� ������������������������
Net Interest Margin (NIM)= ����������������������������      ���������������������������� ������������������������


For the quarter ended June 30, 2009 BNY Mellon’s NIM was 1.77% which was

significantly lower than the peer group average of 3.21%. This lower NIM signals that

BNY Mellon’s income producing assets are returning less than they should compared to

the average of similar banks. This has been the case for the entire three year period dating

back to June of 2007. BNY Mellon’s interest producing assets are not producing the

margins that the competition seems to be enjoying. This could force BNY Mellon to look

for other ways to supplement their earnings, such as increasing fees and interest rates.

The tradeoff of this is that BNY Mellon may lose market share if their competitors are

able to offer the same products and services at a lower cost. BNY Mellon relies heavily

on its noninterest income to remain profitable.

A macro-view of trends in the financial industry may also be behind such a low NIM for

BNY Mellon. The blurring of lines between the types of financial firms since the passage

of the Gramm-Leach-Bliley Act in 1999 surely has forced down the NIM of firms

overall. Deregulation and increased competition has driven down NIMs across the board

and has forced the largest firms to rely on products and services that generate fees. BNY

Mellon is no exception.
                                                           UBPR BNY Mellon   39




                                   Net Interest Margin
                                    BK vs. Peer Group
                      4.00%
Net Interest Margin

                      3.00%

                      2.00%

                      1.00%

                      0.00%
                                   6/30/2007   6/30/2008   6/30/2009
                      BK            1.88%       1.15%        1.77%
                      Peer Group    3.45%       3.42%        3.21%
                                                                     UBPR BNY Mellon      40



CAMELS Analysis
       The Federal and State regulators regularly assess the financial condition of each

bank and the specific risks the bank is facing. This assessment is done on-site and the

examination is published in periodic reports. The Federal regulators rate banks according

to the Uniform Financial Institutions Rating system. This system encompasses six

general categories of performance under the term CAMELS. Each of these letters refers

to one of the specific categories:

C- Capital Adequacy
A- Asset Quality
M- Management Quality
E- Earnings
L- Liquidity
S- Sensitivity to Market Risk

   A. Capital Adequacy

       When regulators examine a bank they are looking for and trying to ensure that the

banks and other financial institutions have sufficient enough capital to keep them out of

difficulty. The regulation of capital adequacy (C) not only protects the depositors, but

the economy as a whole, because the failure of a big bank has extensive parallel effects.

This parallel effect has severe repercussions that the entire financial system can, and

currently is suffering from. This risk is also referred to as systemic risk.

       There are specific components of capital adequacy and these components signal

the institution’s ability to maintain their capital commensurate with the nature and extent

of all types of risk and the ability of management to identify, measure, monitor, and

control these risks. The capital adequacy can be determined by key performance ratios

based on the composition and size of certain balance sheet accounts, and components of
                                                                    UBPR BNY Mellon        41



the bank’s net income. It is calculated using two types of capital: Tier I and Tier II. Tier

I capital absorbs losses without a bank being required to cease operations. Tier II also

absorbs losses, but only in the event of a close or termination of a bank, so it provides a

smaller degree of protection to depositors. According to the bank regulatory agency, a

bank holding company must have a Tier I capital ratio of at minimum 6%, a total capital

ratio of 8%, and a leverage ratio between 3 and 4%. This capital must not be subject to

directive order or written agreement and maintain certain capital levels.

        The capital adequacy requirements have existed for a long time and by many

banks have been completely disregarded. As more and more banks are being closed and

others avoiding closer by being bought by other “healthier” banks the current economy

finds itself paying severe consequences for the poor actions taken by the financial

institutions.

        Bank of New York reported their Tier I capital at 5.44% in fiscal year 2008 and

had a large increase in fiscal year 2009 to 7.55%. With Bank of New York having a

higher Tier I capital ratio above the required 6% standard, this proves that the firm has an

ample amount of core capital that can help lessen any blow of future losses.

        Tier 1 Capital Ratio is a measure of a bank’s capital stock, reserves, and retained

earnings against its risk-weighted assets. The ratio is used in finding a bank’s capital

adequacy, and every bank strives to meet the 6% or greater rating to be a well-capitalized

bank. This ratio has also showed a correlation in the growth of a bank, which through the

years may continue to increase in adequacy. From the chart it notes that State Street is the

most well capitalized, followed by Bank of New York Mellon and JP Morgan Chase &

Co.
                                                                                                   UBPR BNY Mellon   42




                                                          Tier 1 Capital Ratios

                                            25.00%




                 Capital Ratio Percentage
                                            20.00%
                                                                                        Ba nk o f Ne w Y o rk
                                            15.00%                                      Me llo n
                                                                                        Sta te Stre e t

                                            10.00%
                                                                                        JP Mo rga n C h a s e &
                                                                                        Co.
                                            5.00%


                                            0.00%
                                                     T ie r 1 R a tio (O n Ma rch 31,
                                                                  2009 )
                                                                Bank




   B. Asset Quality
      Asset quality (A) reflects the amount of existing credit risk associated with the loan

and investment portfolio, as well as the off balance sheet activities. Most bankers and

examiners agree that the single greatest risk in banking is the risk of loan losses. This is

because loans typically comprise a majority of the assets in most banks. Imagine an

entire year’s worth of earnings being completely wiped out because of one or two large

loans being charged off. Because this exposure is so huge, examiners spend a significant

amount of time assessing asset quality, with a considerable focus on loan quality.

      In evaluating asset quality, examiners look at the existing and potential loss

exposure, primarily in the banks loan portfolio, but will also examine the investment

portfolio along with other assets. As with every CAMELS component, a lot of weight is

put on the management’s ability to recognize and control the portfolio risk. Even if your

bank has very few negative assets, asset quality could still be rated less than satisfactory

because the management seen as not being able to adequately controlling the potential

credit risks. The assessment of asset quality involves much more than calculating past

due and unfavorable classification ratios. In calculating and assessing the trends in
                                                                   UBPR BNY Mellon      43



classified assets, delinquent loans, and credit concentrations, the asset quality component

rating takes into account management’s ability to underwrite and administer credits in a

prudent and sound manner.

     Bank of New York has started to increase the amount of real estate related loans.

From fiscal year 2008 to fiscal year 2009 Bank of New York had a large increase in the

real estate related loans and saw a significant decrease in the amount of commercial

related loans. Also, individual and agricultural related loans saw a large increase as well.

These increases could be related to the home mortgage market as well as being link to the

downturn in market. Given the current state of our economy Bank of New York should

monitor their asset growth rate more closely, especially under the high risk of the current

market conditions.



   C. Management

       The current CEO and Chairman of the Bank of New York Mellon is Robert P.

Kelly. Before the merger in 2007 Robert Kelly served as chairman, president and CEO

of Mellon Financial Corporation from February 2006 up to the merger in 2007. In 2009

Fortune Magazine ranked the Bank of New York Mellon among America’s Most

Admired companies. Robert Kelly was also named one of America’s Best CEOs for

2009 by institutional Investor magazine.



The Current President of the BNY Mellon is Gerald Hassell. Gerald Hassell oversees a

large portion of the Bank of New York Mellon’s major businesses sectors including asset

servicing, issuer services, broker-dealer & advisor services, and treasury services. BNY
                                                                   UBPR BNY Mellon        44



Mellon is the corporate brand of The Bank of New York Mellon Corporation, and is a

global financial services growth company that operates in 34 countries. BNY Mellon is a

global leader in asset management with $22.1 trillion in assets under custody and $966

billion in assets under management



The key components of their overall strategy is to provide superior client service than

their competitors, strong investment performance relative to investment benchmarks,

above average revenue growth compared with the industry, an increased percentage of

revenues generated outside the US, and successful integration acquisitions. Currently

The Bank of New York Mellon is both selling securities off and restructuring their

investment securities portfolio with the recent improvement in the fixed income market.

The sales and restructuring will impact $12.1 billion in investment securities. The

majority of the restructured securities will be kept on BNY Mellon’s balance sheet.



Earlier this month The Bank of New York acquired Insight Investment Limited for $377

million in cash and stock. Insight Investment Management Limited is based in London

and specialized in liability-driven investment solutions, active fixed income and

alternative investments. This acquisition will help support their strategy to bring in more

revenue abroad because Insight Investment Management Limited clients include some if

the United Kingdom’s largest pensions fund managers, corporations, and insurance

companies. Insight Investment Management Limited has approximately $133 billion in

assets under management and will fall under BNY Mellon Asset Management.
                                                                     UBPR BNY Mellon      45



   D. Earnings

Earnings reflect the quantity and trend in earnings and the factors that may affect the

sustainability or quality of earnings. Over the last year, from the third quarter results in

2008 to the third quarter results in 2009, The Bank of New York Mellon’s earnings has

gone down considerably. As noted in the Income Statement Analysis section the main

source of revenue generated comes from the services they provide. The major services

include, asset management, wealth management, asset servicing, issuer services, clearing

services, and treasury services. Every business segment has seen a decrease in revenues

and fee income when compared to the second quarter of 2009 and third quarter in 2008.

According to The Bank of New York Mellon’s third quarter 10Q report, “fee revenue has

decreased 15% versus the year-ago quarter primarily due the decreases in asset and

wealth management fees, issuer services revenue and securities lending revenue.” (BNY

Mellon 10Q Report p8). The most notable decreases in revenue came from securities

lending revenue, issuer services, and asset and wealth management fees that saw a 72%,

25%, and 20% decrease in their revenues and fees respectively. The Bank of New York

Mellon’s has sustained major losses in revenue in some of their major business segments

over the last year. This causes some major concerns when it comes to the sustainability

of their earnings and we believe that we need to keep on eye on the current trend of

decreasing revenues in the future.
                                                                       UBPR BNY Mellon       46



    E. Liquidity

      Liquidity (L) reflects the adequacy of the institutions current and prospective

sources of liquidity and funds-management practices. The Bank of New York Mellon is

able to maintain their liquidity through the management of their assets and liabilities,

utilizing the worldwide financial markets. Because of the constant changing market

conditions that banks have to face today, The Bank of New York Mellon uses

diversification of their liabilities in an effort to maintain flexibilities of funding sources.

The company uses derivative products like interest rate swaps and financial futures,

which enhances liquidity by enabling them to issue long-term liabilities with limited

vulnerability to interest rate risk.

      Liquidity is also the result of a company’s maintenance of a portfolio of assets that

can be easily sold and the maintaining of unfunded loan commitments. This can reduce

any unanticipated funding requirements. For The Bank of New York Mellon, these

unrealized losses in the company’s securities portfolio have not had any adverse affect on

the impact of their liquidity. At the end of June 2009, the company had approximately

$47 billion of liquid funds and $20 billion in cash. This resulted in a total of

approximately $67 billion of available funds. This total amount of available funds has

shown a decrease from $105 billion, which was the total at the end of 2008. As you

would expect the company’s liquid assets to total assets ratio also decreased during that

time span from 44% at the end of 2008 to 33% at the end of June 2009. The company

explains in their form 10-Q, these decreases reflect lower cash balances, which were

primarily deposits with the Federal Reserve and other central banks, resulting from the
                                                                      UBPR BNY Mellon         47



decline in noninterest-bearing deposits as client cash that had sought a safe haven during

the credit crisis has continued to roll off. Even though the company has seen a decrease in

their total available funds and liquid assets to total assets ratio, they still have been able to

maintain a stable rating in liquidity from all of the major rating agencies as you can see in

the graph below which was taken off of the company’s from 10-Q. This shows that the

company is in a good position when it comes to the liquidity aspect of the CAMELS

rating system.



Debt rating at June 30, 2009
                                                                                Dominion
                                                  Standards                     Bond
                                                   &                            Rating
                               Moody’s            Poor’s             Fitch      Service
Parent:
 Long-term senior debt         Aa2                AA-                AA-        AA (low)
 Subordinated debt             Aa3                A+                 A-         A (high)

The Bank of New York Mellon:
 Long-term senior debt       Aaa                  AA                 AA-        AA
 Long-term deposits          Aaa                  AA                 AA         AA
BNY Mellon, N.A.:
 Long-term senior debt       Aaa                  AA                 AA-        AA
 Long-term deposits          Aaa                  AA                 AA         AA
Outlook:                     Stable               Stable             Stable     Stable
                                                                                (long-term)


    F. Sensitivity to Market Risk
      Sensitivity to market risk (S) displays the degree to which changes in interest rates,

foreign exchange rates, commodity prices, and equity prices can adversely affect earnings

or economic capital. This aspect considers management’s ability to identify, measure,

monitor, and control price risk. Interest rate risk is the primary contributor to market risk

and it stems mostly from accepting deposits and making loans. Because interest rates are
                                                                     UBPR BNY Mellon         48



variable, profitability will increase or decrease with a change in the rate. The net interest

income for The Bank of New York Mellon has increased by about 120% from the end of

June 2008 when it was at $628.08 million to $1.379340 billion at the end of June 2009.

This shows that the company’s sensitivity to market risk is very high. The decrease in

interest rates that has occurred during the financial crisis has caused their net interest

income to more than double. Because of the shear amount of increase that has occurred to

net interest income since interest rates have been dropping causes concerns.

      With the bank being this highly sensitive to the market it puts them at risk anytime

something happens. Given the fact of how unpredictable the economic and market

conditions currently are right now this is a bad sign for the company. The unpredictability

of such things like the liquidity of global financial markets, the level of volatility of debt

and equity prices, interest rates, currency and commodity prices, and investor sentiment

all affect The Bank of New York Mellon. The concern lies in the fact that you know the

bank is highly sensitive to the factors of the market, so you have to carefully analyze the

situation to determine if any movements in those factors will positively or negatively

affect them. That makes this area of the CAMELS analysis a key area to focus on when

attempting to determine the current and future financial condition of the bank.
                                                                    UBPR BNY Mellon      49



Conclusion
       BNY Mellon has weathered the recent financial crisis with considerable poise.

Their management team has kept them relatively insulated from the bank-killing

practices that brought down such giants as Bear Stearns and Lehman Bros. That is not to

say that BNY Mellon did not bear its share of the burden. BNY Mellon did not engage as

heavily in the subprime mortgage fiasco as many of its competitors did. This allowed

them to keep their balance sheet relatively safe from asset write-downs. By pursuing

noninterest income through fee-generating services, BNY Mellon has been able to keep

their revenue stable relative to many of their competitors. Also, BNY Mellon’s risk

management practices have helped them to not take the same level of losses in charge-

offs that their competitors have.

       BNY Mellon does require attention in certain areas. Their balance sheet may

appear to be in decent shape, but it does not account for the risk involved with their off-

balance sheet activities. Speculation and risky off-balance sheet activities must be

carefully scrutinized by management in order to prevent a potential crisis at BNY Mellon.

       BNY Mellon, like all financial institutions during the current recession, has taken

its lumps. However, they seem well positioned to emerge from this recession as a strong

bank with sound management policies. As the economy continues to rebound, BNY

Mellon will inevitably improve earnings and will continue to be an industry leader. Their

viability as a bank appears to be in good condition. With the proper strategy and vision

established by its management, BNY Mellon appears to be one bank that has done things

right, all things considered, throughout this financial crisis and economic recession.
                                                                UBPR BNY Mellon     50




References

Doorn, Philip van. “Bank of New York Posts $2.5B Loss.” TheStreet.com. 20 October
       2009. 26 October 2009.
       http://www.thestreet.com/story/10613775/1/bank-of-new-york-posts-25bloss.html

Federal Deposit Insurance Corporation. Regulations and Resources.
       http://www.fdic.gov/regulations/resources/directors_college/sfcb/asset.pdf

Investing for Beginners. Return on Equity.
        http://beginnersinvest.about.com/od/incomestatementanalysis/a/understanding-
        return-on-equity.htm

Investopedia. Equity Multiplier.
       http://www.investopedia.com/terms/e/equitymultiplier.asp

Investopedia. Return on Assets.
       http://www.investopedia.com/terms/r/returnonassets.asp

Investor Words. Du Pont Analysis.
       http://www.investorwords.com/6496/Du_Pont_analysis.html

Investor Words. Loan Deposit Ratio.
       http://www.investorwords.com/2861/loan_deposit_ratio.html

Investor Words. Return on Equity.
       http://www.investorwords.com/4248/Return_on_Equity.html

“June 30, 2009 Uniform Bank Performance Report: Bank of New York Mellon
       The Bank of New York Mellon (Certificate Number 639). Federal
       Deposit Insurance Corporation.
       http://www2.fdic.gov/UBPR/UbprReport/SearchEngine/Default.asp

“June 30, 2009 Uniform Bank Performance Report: Bank of New York Mellon
       The Bank of New York Mellon (Certificate Number 639). Federal
       Deposit Insurance Corporation.
       http://www2.fdic.gov/ubpr/SelectRepDate.asp?pCert=639

Kennon, Joshua. Investing for Beginners. Return on Assets, ROA Income Statement.
      http://beginnersinvest.about.com/od/incomestatementanalysis/a/return-on-assets-
      roa-income-statement.htm
                                                              UBPR BNY Mellon    51



Koch, Timothy W., and S. Scott MacDonald. Bank Management. 7th ed. Mason, OH:
       Thomson South-Western, 2007




United States Securities and Exchange Commission. “Bank of New York Mellon
       Corporation Second Quarter 2009 Form 10-Q”
       http://www.bnymellon.com/investorrelations/financialreports/2009/2009q2.pdf

				
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